Apprenticeship Levy
A guide to the Apprenticeship Levy in the UK, covering who pays, how it is calculated, how to report it through PAYE and how to access levy funds for apprenticeship training.
The Apprenticeship Levy is a mandatory payroll charge on UK employers with an annual pay bill exceeding £3 million. Introduced in April 2017, it funds apprenticeship training across England and is collected monthly through PAYE . Employers who pay the levy can draw down funds to invest in apprenticeship programmes for their workforce.
Who Pays the Levy
The levy applies to all employers — regardless of sector, size or whether they employ apprentices — provided their total pay bill exceeds the £3 million threshold. The pay bill includes:
- Gross wages and salaries
- Bonuses and commissions
- Pension contributions (employer and employee)
- Any other earnings subject to Class 1 secondary NICs
It does not include benefits in kind that are not subject to secondary NICs.
Connected Companies
Where employers are connected (for example, companies in the same group), the £15,000 annual allowance is shared between them. Each connected employer is assessed individually on their own pay bill, but the group must split one allowance between the entities.
How the Levy Is Calculated
The levy rate is 0.5% of the total annual pay bill. Every employer also receives an annual levy allowance of £15,000, which offsets the amount due.
| Component | Amount |
|---|---|
| Levy rate | 0.5% of annual pay bill |
| Annual allowance | £15,000 |
| Monthly allowance | £1,250 (£15,000 ÷ 12) |
Calculation Example
An employer with an annual pay bill of £5 million:
| Step | Calculation | Amount |
|---|---|---|
| Annual levy | £5,000,000 × 0.5% | £25,000 |
| Less allowance | −£15,000 | |
| Net levy payable | £10,000 | |
| Monthly payment | (£5,000,000 ÷ 12) × 0.5% − £1,250 | £833.33 |
An employer with a pay bill of £2 million pays nothing because the levy (£10,000) is less than the £15,000 allowance.
Reporting and Payment
The Apprenticeship Levy is reported and paid through the existing PAYE payroll process:
- Calculate the levy each month based on the pay period’s pay bill
- Deduct the monthly allowance of £1,250
- Report the levy amount on the Employer Payment Summary (EPS) submitted through RTI
- Pay the levy alongside PAYE income tax and National Insurance by the 22nd of the following month (electronic) or the 19th (cheque)
The levy appears on the same payment schedule as other payroll liabilities. There is no separate return or payment mechanism.
Accessing Levy Funds
The Apprenticeship Service Account
Levy-paying employers in England receive funds in a digital apprenticeship service account. HMRC transfers the levy payments into this account monthly, and the government adds a 10% top-up — so for every £1 of levy paid, £1.10 is available for training.
| Feature | Detail |
|---|---|
| Top-up | 10% government contribution |
| Expiry | Funds expire 24 months after entering the account |
| Transfer | Employers can transfer up to 25% of annual funds to other employers |
| Usage | Pay for apprenticeship training and assessment with approved providers |
What Levy Funds Can Pay For
- Training costs with an approved training provider
- End-point assessment costs
- Apprenticeships at any level from Level 2 to Level 7 (degree apprenticeships)
Levy funds cannot be used for wages, travel costs, work equipment or recruitment.
Non-Levy-Paying Employers
Employers with a pay bill under £3 million do not pay the levy but can still offer apprenticeships. The government covers 95% of training costs (up to the relevant funding band), and the employer pays the remaining 5% co-investment. Small employers with fewer than 50 employees may qualify for full government funding when taking on apprentices aged 16–18.
Levy and the Employment Allowance
The Apprenticeship Levy and Employment Allowance are separate reliefs. An employer can claim the Employment Allowance (which reduces employer NIC liability) and still be liable for the Apprenticeship Levy if their pay bill exceeds £3 million. The Employment Allowance does not reduce the pay bill used for the levy calculation.
Devolved Nations
The levy is collected UK-wide, but apprenticeship training policy is devolved:
| Nation | Funding Body | Apprenticeship System |
|---|---|---|
| England | Education and Skills Funding Agency | Digital apprenticeship service account |
| Scotland | Skills Development Scotland | Separate funding system — levy funds flow to Scottish Government |
| Wales | Welsh Government | Separate funding arrangements |
| Northern Ireland | Department for the Economy | Separate funding arrangements |
Employers operating across multiple nations must understand that their levy contributions are allocated proportionally based on the home addresses of their employees.
Accounting for the Levy
The Apprenticeship Levy is an employment cost recorded in the employer’s accounting records:
| Account | Treatment |
|---|---|
| Levy expense | Debited monthly as a payroll cost |
| HMRC liability | Credited until payment is made |
| Training costs | Debited when levy funds are drawn down for apprenticeships |
The levy is deductible for corporation tax purposes as a normal business expense. Unspent levy funds that expire after 24 months represent a sunk cost and cannot be reclaimed.
Common Pitfalls
- Underestimating the pay bill — all earnings subject to secondary NICs count, not just basic salaries
- Forgetting connected companies — the £15,000 allowance is shared, not duplicated
- Letting funds expire — the 24-month window requires active planning to identify and enrol apprentices
- Confusing UK-wide collection with England-only spending — the digital service account only works for English apprenticeships